A newcomer reading about the pharma industry today might assume that the most, if not the only, interesting work is going on in biopharma. This youngest and most dynamic section of pharma is making the greatest contributions to corporate profits and driving M&A activity and new R&D alliances. It’s easy to forget that most of the pharmaceuticals being developed today are still small molecules, and the result of breakthroughs in chemistry.

“Biologics are very small volumes in terms of number of patients treated, but they are very expensive and high value, and the media tend to focus on that,” says Matthew Moorcroft, vice-president of marketing for Cambrex Corp., which recently invested close to $50 million to expand its large-scale API business in the United States. “Pharma’s mainstay remains the little white pill, and the small molecules that make it,” he says.

Moorcroft spoke on this topic in a March 2015 webcast (1), “Resurgence of the Small-Molecule API Market,” with Edinburgh-based fine chemicals and CMO consultant, Jan Ramakers, a DSM veteran and PhD chemist who has been benchmarking small-molecule API manufacturers since 1997.

According to IMS Health data cited in the webcast, the global pharma market was worth $1 trillion in 2014, and should reach $1.3 trillion by 2018. Small molecules represented most of pharma’s revenues in 2014, Moorcroft says (see Figure 1). Whole new therapeutic classes have arisen over the past 10 years (see Table I), driven by novel chemistries, and the complexion of the top products has changed significantly over that period (see Table II), to emphasize antivirals and oncology drugs. “If you take a snapshot of the drugs that patients take today and compare that with what they took in 2005, you can’t help but conclude that very aggressive R&D is still going on in small-molecule R&D,” says Moorcroft.

Small molecules predominate in most sales categories (see Table III) and all phases of the pharma pipeline (see Table IV), and should continue to lead the market for the next five years, Moorcroft says, citing IMS data and numbers developed by Cambrex and Evaluate Pharma. Currently, more than 900 drugs are in late-stage clinical trials, and two-thirds of them are based on small molecules. In fact, Moorcroft projects, today’s late-stage clinical candidates mean more than 3000 new opportunities for CDMOs and CMOs in the small-molecule space.

Click to EnlargeSmall innovators source locally
If the general press tends to emphasize biopharma, it has also focused on the movement of API production offshore, mainly to India and China. While that is true for the commodity APIs used in over-the-counter and generic drugs, demand for specialized APIs, and a local supply of them, is driving growth in the US and Europe. API manufacturers are increasing capacity and acquiring new capabilities in the US, to keep up with demand.Click to Enlarge
“Small and virtual pharma companies are developing new chemical entities (NCEs), and many of these companies don’t have the bandwidth and resources to deal with offshore outsourcing of the API and other key drug development components,” says Yann d’Herve, vice-president of sales and services, Americas, for Evonik’s Health Care business line. He has seen increased demand for experienced US- and Europe-based CDMOs, especially in later-stage molecules, complex chemical synthesis capabilities, GMP intermediates, registered starting materials, and highly potent APIs.

“There are a lot of new companies looking to get into the clinic, and there are many more opportunities today,” says Wayne Nowicki, Director of Business Development for Regis Technologies, which focuses on earlier stages of the value chain, such as Phases I and II. He has seen demand for small-molecule API services grow by as much as 20% in recent years.

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“A growing number of small- and mid-sized companies have complex molecules in Phase II and III, and they are outsourcing much more than Big Pharma,” notes Lukas Utiger, president, Patheon Drug Substance Services and leader of Patheon’s One Source end-to-end offering.

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This is particularly true in early phase work, but also in process development and production services, Utiger says. He notes that, while the total number of players in the API market has decreased in recent years, the complexity of APIs is increasing, with greater demand for expertise in stereochemistry, and for complex hydrogenation and addition reactions.

Defying commodity stereotypes
This specialized, US- and European-centered market is also the focus for Neuland Labs, headquartered in India. “Our main customers are innovator companies that have larger volume and complex chemistry requirements,” says Saharsh Rao Davuluri, executive director and president of contract research. Launched 30 years ago as a pure-play API manufacturer by his father, a Notre Dame alumnus, the company was named after Notre Dame professor chemist and innovator Julius Nieuwland.

Davuluri and his brother, who is CEO, were both educated in the US and now run the company, which is 51% family owned, has 400 drug master files (DMFs), 1100 staff and three facilities, and sells to 85 companies (seeFigure 2).

Small-molecule APIs are hitting a phase of higher growth, says Davaluri, who agrees that complexity is the trend for API chemistries, particularly in inhalables and injectables. “In looking at complexity, you can focus on the nature of the molecule—for instance, with anti-asthmatic products, the particle size distribution of the API is crucial and needs to be extremely precise. Or you can focus on the chemistry involved.”

One relatively new area for the company has been deuterium chemistry, in which deuterium is used to replace the hydrogen in existing compounds and both versions of the drug are developed. Deuterated compounds show promise in increasing the bioavailability and safety of some drugs, and most efforts are now in the preformulation stage, Davaluri says.

Figure 2: A chemist at work at Neuland’s synthetic chemistry lab.

Expanding capacity for HPAPIs
Demand for more specialized services is also reflected in growth for highly potent active pharmaceutical ingredients (HPAPIs) manufacturing services, which require additional expertise and significant investment in containment technologies. Evonik first expanded its capacity in this area five years ago, when it acquired Eli Lilly’s potent compound manufacturing facility in Lafayette, Indiana. “There is a substantial increase in activity with highly potent NCEs often used in oncology drugs,” says d’Herve, “and worker protection and safety are paramount,” he says. The company has completed its HPAPI offering by adding small and mid-scale equipment in Germany and the US in 2013 to provide end-to-end support for its clients’ HPAPI projects from phase I through commercial quantities.

Regis just started up a new high-containment facility in the Chicago area last quarter (see Figure 3) to manufacture clinical quantities of HAPIs. “About one third of our customers are advancing more potent compounds, including cytotoxic APIs,” says Nowicki. The need to acquire more challenging chemistry capabilities also drove Patheon’s acquisition of IRIX Pharmaceuticals in March 2015, providing expanded HPAPI capacity for late-phase development customers, as well as the ability to work with controlled DEA Schedule 2 substances, which cannot be imported into the US, says Utiger.

Figure 3: Like many CMOs, Regis recently expanded HPAPI manufacturing capacity. Here, an operator at work at its new Chicagoland facilities.

Trust and the need for speed
The entire API market has changed considerably since the 1970s, when pharma companies made their own APIs inhouse, says consultant Jan Ramakers. Initially, companies feared outsourcing, especially for APIs, because of potential intellectual property leaks. Now, he says, you see more trust, even though a lot rides on CMO selection. “The minute you outsource API manufacturing, your whole supply chain depends on your partner,” he says.

He notes a difference in philosophies among pharma companies. “The Big Anglo-Saxon pharma companies like AstraZeneca tend to prefer outsourcing, where companies like Sanofi still do more inhouse.” However, more pharma companies are comfortable taking the outsourcing trust fall, and Ramakers sees a shift from transactional contract business to strategic partnership taking hold. This, in turn, is driving a change in the way some API manufacturers approach the business.

Some suppliers, such as Neuland, plan to remain in API development and manufacturing, while others are increasingly moving into formulation and other finished drug product services.

Patheon articulated this goal with its OneSource offering, which aims to streamline processes from drug substance through drug product, optimizing the supply chain and quality agreements along the way. “With Patheon OneSource, it’s easier and faster for customers to partner with us,” Utiger says, “especially where logistics and quality issues are concerned.”

“People are looking for speed, and to get to the clinic as soon as possible. The faster you can do development and validation, the better,” he says. As a result, more customers, especially smaller companies, are trying to simplify and harmonize contracts, he says, and the company is becoming more like a consultant or partner than a hired manufacturer.

He also notes an increase in customer trust. “People used to stick to requesting registered intermediates and to take two steps away from the API. Now, more customers are coming to us with the chemistry and giving us the freedom to assemble the best solution and manage the supply chain,” he says. “They still want to control who is doing what, but there is a better understanding of supply chain complexity.” To improve its formulation toolbox, Patheon bought Agere Pharmaceuticals in March 2015. The company focuses on solutions for low solubility, such as special spray drying capabilities.

Evonik is also growing its 20-year drug formulation services business, and offerings that include solubility and bioavailability enhancement via spray drying, milling, hot-melt extrusion, or other novel techniques. Drug delivery technologies for oral applications, extended release technologies for injectables as well as clinical scale GMP manufacturing are offered by Evonik, d’Herve says.

Over the past few years, there has been a need to look into drug delivery options as early as possible in the development process. “Today, some NCEs are so insoluble that you have to customize a drug delivery option for the compound to be therapeutically viable. In some cases, the API is so potent that a local controlled release injectable delivery makes more sense,” d’Herve says. “As a result, drug bioavailability and delivery mode must be looked at during preclinical stages, where, in the past, it wouldn’t be considered until Phase I or II.”

Repurposed APIs
As pharma works to enhance its pipeline, there is increased interest in repurposing APIs, and developing actives that were abandoned or discontinued by Big Pharma, and optimizing them for different formulations or for different applications. “Companies are using API repurposing to balance portfolios and reduce risk,” says Evonik’s d’Herve. “In these cases, the drug’s safety profile is well known, so we can work on better bioavailability and release profiles.” The trend is becoming particularly important in pediatric drug development, he says.

Regis has recently worked on projects of this type, with APIs developed and dropped by Big Pharma being pursued by smaller companies. “One advantage to the client is that all safety testing has already been done,” says CEO Nowicki. Neuland has seen demand for these services increase significantly. The company had one project in this area in 2013, but in 2014, it had six, and it is already working on four such projects in 2015.

Optimizing processes
The past few years have seen an emphasis on process optimization—for instance, decreasing the number of process steps, and solvents, involved in API manufacturing. “This remains a continuous challenge,” says Ramakers.

In addition, the whole scale range of the business is broadening, notes Moorcroft. “Twenty years ago, when the CMO industry was mainly dealing with classic blockbusters, you were only thinking in terms of tens of metric-ton API production levels,” he says. “Now, with HPAPIs and antibody drug conjugates (ADCs), commercial small-molecule volumes can range from the metric ton level down to kilograms and even lower. CMOs need to have this flexibility when building their plants today. This wasn’t the case two decades ago.”

Improving tech transfer
Scaleup and tech transfer have evolved significantly over the past few years, says Guy Samburski, director of technology R&D at Teva Pharmaceuticals. “It has become important to define the processes involved and institutionalize them to ensure Right First Time success,” he says, noting that transfers involve a significant amount of process engineering skills, and not just a knowledge of chemistry.

“A high level of collaboration comes with having the right tech transfer teams in place, and teams require chemistry, process engineering as well as analytical chemistry knowledge in order to work in harmony with the production team,” he says.

Samburski sees a need for more modern tools. “Use of process engineering simulation packages can make a significant difference to successful tech transfers and scale-up,” he says. “Allowing us to forecast the influence of scale-up and such differences in equipment as reactor size and geometry, impeller type and design, and heat transfer on processes, can save a lot of work and time. We have seen this to be extremely effective and successful in our recent scale-ups and tech transfers,” he says.

At the same time, there is increased interest in applying principles of pharmaceutical quality by design (QbD). “We didn’t even hear customers mention the term five years ago,” Moorcroft says. “Now, some expect it.” QbD is important, and requires a much better understanding of the process during development, says Davaluri. “We have started to take a multidimensional approach to research projects, and to use design of experiments (DOE) and design space concepts in the early stages and to include these concepts in new product discussions,” he says. “This has already resulted in more efficient scaleup and minimized out-of-specification (OOS) problems,” he says.

As Samburski notes, QbD is yet not officially mandatory in API development; however, in practice, he says, Teva uses QbD, and process parametrization has become the most critical part of the toolkit in Teva’s development program. “For every process parameter, the range is set based on experimental data, and includes the validation of the range edges, and estimation of deviations while considering measurement errors. Each parameter is classified as critical (effect on quality or yield), significant (effect on cost), or operational,” Samburski explains.

“Using DOE enables us to find the optimal parameter range with minimal experimental work. Additional process simulation work can then provide rational and additional data to the parametrization.”

“In addition to helping us develop better processes, QbD enables us to provide high-quality data files that support our pharmaceutical customers in their QbD work,” he says.

Opportunities for CMOs
Which contract services companies currently dominate the small-molecule API business and which are poised for future growth? Figuring out who is who in a highly fragmented market is challenging. Included under the API supplier category are arms of pharma companies, independent fine chemicals suppliers, and CMOs.

To shed some light on a market whose assessment has alternatively been viewed as throwing darts or “black art,” Moorcroft, a veteran of Lonza who had worked at Frost & Sullivan and other consulting companies in the past, ranked the top CMOs in the small-molecule API field.

Using data from consultants Peter Pollak and Jan Ramakers, and the marketing consultancy, That’s Nice, he narrowed the thousands of companies describing themselves as small molecule CMOs down to the top 100, with the top 10 CMOs listed in Table V. Whether or not you agree with this ranking, CMOs will see opportunities in both small- and large-molecule APIs, for years to come.